One world-wide accounting language?

During her confirmation hearing, Mary Schapiro said, “I think we all can agree that a single set of accounting standards used around the world would be a very beneficial thing, would [enable] investors to compare companies around the world.”

I can understand why she would say this–she’s never had any graduate level eduction in financial accounting theory. Had she any such study, she would recognize the absurdity of her statement.

I’ll give one reason today, then follow up later with more advanced treatments.

There should be no single world-wide accounting language (or sets of accounting standards) for the same reasons there should be no one world language. Can you imagine the bruhaha that would follow President Obama saying during his inaugural speech that it would be beneficial for there to be one world language? He could argue that it would make it easier to communicate around the world. Consequently, he had decided to move the United States to the world’s most spoken language: Chinese. Everyone in the U.S. would benefit from ease of international communications and there would be no downside.

Hah! There would be so much disagreement with this proposal. People would argue that the Chinese language evolved for a separate culture from what we have in the United States. They would say that English works just fine to convey the thoughts, emotions and feelings that exist in our present American culture. If we were to switch to Chinese, then communications here in the U.S. simply would not be as rich, we’d lose a lot of meaning. There would be too much pain for negligible gain.

A language evolves to fit its culture. Language is not static. Moreover, there is no one best way for a language to be. In the ancient Greek language, there are five words for the single English word of Love. The words are: Eros (ἔρως érōs), Philia (φιλία philía), Agapē (ἀγάπη agápē), Storge (στοργή storgē), and Thelema (θέλημα thélēma). We don’t appreciate the need for so many words here and now. But then, ancient Greeks would not appreciate being handcuffed with a single English word.

If President Obama were to order us to switch to Chinese, many would ask who is to gain the benefit from switching, everyone? The answer would be–language teachers would benefit the most, and current United States residents who are native speakers of Chinese. They could then always speak in their native language instead of using English. Everyone else, which is most of the country, would suffer.

Really, there is no reason for the United States to switch from English to Chinese. If Americans wish to speak to a person from Peking, they can get their communication translated. The translation comes at a cost. The benefit from avoiding this cost by switching would be much less than the huge opportunity costs of educating everyone in the U.S. to speak another language. If we continued using English, then translation to Chinese would (and is) a trivial expense, and a minor inconvenience.

Similarly, there is no good reason for anyone to have the U.S. discontinue using its accounting language (GAAP) and switch over to IFRS. Having multiple accounting languages in the world is a minor inconvenience and translation expenses are, in the grand scheme of things, trivial. Moreover, GAAP seems to fit our culture, economy and system of financial markets. For example, in the U.S. we generally hold that all investors should have equal access to the same information. consequently we have standard accounting rules that don’t permit companies any flexibility in the preparation of their financial statements. We then attempt to punish company executives if they attempt to circumvent the rules. We would have major disruptions to our culture, economy and system of financial markets if we suddenly switched to IFRS because IFRS does not fit our mode of business. Who would benefit if the U.S. switched to IFRS? Certainly not investors, for the same rason that they would not benefit if the country moved immediately to Chinese. The beneficiaries would be the accounting firms that would teach us the new IFRS, and company executives.

There should be no world-wide accounting language for the same reasons there should be no world-wide spoken/written language. Anyone who touts the benefits of a single world-wide accounting language is simply ignorant.

11 Responses

IFRS would increase asymmetrical information in a negative manner for investors. Investors would have less information about the company with the use of IFRS with comparison to GAAP. This loss of market information would affect the efficiency of investing and could decrease productivity in markets. If we are investing into companies or markets with low efficiency because of less information of where to invest our money due to IFRS there is a major opportunity loss. If our investment would have been in companies or markets with high efficiency, production would have been higher because of the higher the efficiency. The more efficient a company, the more will be done with an investor’s money.

High efficiency is an integral part of profitable business and productivity. Information is important for high efficiency.

Dear Dr.Albrecht ,
I’m a sixteen years old girl from Québec , canada.
Your article help me for my Oral exam in english . My topic is : Should it be one world language that everyone should learnd.
Thanks for you help even if it was not conscious.

Bravo, Professor. IFRS is the metric system of the first decade of this millenium.

The ugly reality is that this isn’t just an argument about comparability or simplicity. The real answer is money.

The truth is the Big 4 dominates FASB. For years, they have envied the inability to pursue the a strategy they have advocated for their clients-outsourcing.

GAAP represents the principle obstacle to importing foreign nationals to fill manager, senior manager and partner ranks. If some promising “senior associate” works in London or Tokyo and wants an “internation rotation”, geographic dislocation and language can be impediments. GAAP makes it insurmountable. If they can get rid of GAAP, they can get access to a viortually unlimited supply of foreign accountants.

[…] David Albrecht thinks the US should not replace its accounting rules (GAAP) with the new, international standard (IFRS). A language evolves to fit its culture. Language is not static. Moreover, there is no one best way for a language to be. . . . […]